TORONTO, Jan 21 (Reuters) - The Canadian dollar recouped much of its earlier decline against the greenback on Tuesday as investors assessed the chances of U.S. President Donald Trump carrying out a threat to impose a hefty tax on imports from Canada next month.
The loonie was trading 0.2% lower at 1.4340 per U.S. dollar, or 69.74 U.S. cents, clawing back most of its losses after it tumbled to its weakest intraday level since March 2020 at 1.4515.
Trump did not immediately impose tariffs on Monday as previously promised but said he was thinking about imposing 25% duties on imports from Canada and Mexico on Feb. 1 over concerns about fentanyl crossing into the U.S. and illegal migration.
"The market is a little bit skeptical that he's going to follow through with it," said Marc Chandler, chief market strategist at Bannockburn Global Forex.
"It might be a way to claim victory since immigration and fentanyl is not really much of a problem for the (U.S.) northern border."
Canadian Prime Minister Justin Trudeau reiterated that his government is ready to respond to all scenarios if Trump imposes tariffs on Canada, adding that Trump's promised prosperity for the United States will require Canadian resources to fuel it.
"Separating the signal from the noise with Trump is incredibly difficult," said Adam Button, chief currency analyst at ForexLive. "Our base case is that he's not serious about tariffs with Canada."
Canadian inflation slowed to an annual rate of 1.8% in December, helped by a sales tax break, supporting bets that the Bank of Canada will cut its benchmark interest rate by a further 25 basis points on Jan. 29.Canadian bond yields moved lower across a flatter curve. The
10-year was down 3.6 basis points at 3.242%, its fifth straight day of declines.
Reporting by Fergal Smith; Editing by Rod Nickel
